The One-Fund Portfolio as a default suggestion

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GoneOnTilt
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Re: The One-Fund Portfolio as a default suggestion

Post by GoneOnTilt »

longinvest wrote: Sat Feb 20, 2021 7:25 pm
Ferdinand2014 wrote: Sat Nov 07, 2020 10:02 pm
bck63 wrote: Sat Feb 20, 2021 7:13 pm
This thread is about the One-Fund Portfolio. There are other threads to discuss the minutia of budgeting, cash account management, and possibly low-cost debt to spread the cost of big items over time.
Okay longinvest. Apologies and thank you. A question if I may. Is there a lowest stock allocation you would recommend for a one-fund option in retirement. For example, might VASIX (Vanguard Lifestrategy Income Fund) be an option for some as a one-fund solution? I am a very conservative investor.
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Re: The One-Fund Portfolio as a default suggestion

Post by Triple digit golfer »

bck63 wrote: Mon Feb 22, 2021 3:56 pm
longinvest wrote: Sat Feb 20, 2021 7:25 pm
Ferdinand2014 wrote: Sat Nov 07, 2020 10:02 pm
bck63 wrote: Sat Feb 20, 2021 7:13 pm
This thread is about the One-Fund Portfolio. There are other threads to discuss the minutia of budgeting, cash account management, and possibly low-cost debt to spread the cost of big items over time.
Okay longinvest. Apologies and thank you. A question if I may. Is there a lowest stock allocation you would recommend for a one-fund option in retirement. For example, might VASIX (Vanguard Lifestrategy Income Fund) be an option for some as a one-fund solution? I am a very conservative investor.
20-30% seems to be most recommendations I've seen from credible sources. Vanguard's Target Retirement Income fund is 30% equities and their LifeStrategy Income fund is 20%. The former includes short-term TIPS and the latter does not. Pick one, set it and forget it!
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Re: The One-Fund Portfolio as a default suggestion

Post by Volando »

I just wanted to say thank you for this thread. It provided a lot of useful information to ponder. I had been trying to wrap my head around different strategies to balance our portfolio across different accounts for our 401(k)/403(b). My wife and I are both in different target date funds, though hers is in vanguards. We’re about to open an IRA and I was looking at different options. Thanks to this thread I think I may be one step closer to just opening the same target date fund that she is in with her employer to simplify our portfolio and have them mirror each other. I think a target date fund is more appealing to us than the life strategy.
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Re: The One-Fund Portfolio as a default suggestion

Post by SteadyOne »

longinvest wrote: Fri Aug 16, 2019 10:42 pm Here are some additional arguments in favor of a mirrored asset allocation in all accounts that I've written in another thread:

Often in investing, shooting for the best or optimal solution is counterproductive. For example, shooting for an optimal asset allocation using mean-variance analysis usually leads to concentration into the asset which had the best historical returns. We know that this can sometimes result into a bad outcome.

The optimal asset allocation can only be determined after the fact. The same goes with asset location. It's only when I'll die that survivors will be able to determine what asset allocation and location would have been optimal during my life.

As an investor into a globally-diversified total-market balanced index portfolio, I'm just aiming for a good enough outcome. I know that a total-market index portfolio will only deliver average returns. But, this average result is mathematically guaranteed. In other words, I am guaranteed not to be invested into the worst portfolio. This strong guarantee is very attractive to me. Actually, total-market investing comes with other advantages: it isn't vulnerable to front running, it minimizes turnover, it can be done at low cost, etc.

Choosing a mirrored asset allocation in all accounts is similar. It might not be optimal, but it's mathematically guaranteed not to be the worst choice. It's a simple and good enough asset location strategy. Actually, it comes with advantages: it eliminates the need for tax-adjusting the asset allocation (as it's inherently tax adjusted) and it opens the door for using a single identical all-in-one fund in all accounts significantly simplifying the portfolio.
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Re: The One-Fund Portfolio as a default suggestion

Post by Tattarrattat »

Hi. Noticed these two points in the first post:

"Most analyses ignore that rebalancing reduces the impact (good or bad) of prioritizing the location of specific assets into specific accounts.

Most analyses ignore the tax advantage of rebalancing with the cash flows of other investors when using a balanced fund or ETF in a taxable account."

Can someone explain how rebalancing and new cash flow changes the tax consequences? Is it simply because you don't have to actually sell anything to rebalance so don't generate a taxable gain? Or is there more to it?
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longinvest
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Re: The One-Fund Portfolio as a default suggestion

Post by longinvest »

Tattarrattat wrote: Fri Apr 30, 2021 10:09 am Can someone explain how rebalancing and new cash flow changes the tax consequences? Is it simply because you don't have to actually sell anything to rebalance so don't generate a taxable gain? Or is there more to it?
Tattarrattat, there's more to it.

When an investor holds separate stock and bond funds in a taxable account, the investor can (partly) rebalance during accumulation when contributing new money by investing it into the asset below its target allocation. Let's call this soft-rebalancing. This (partly) rebalances the portfolio without selling, so without causing a taxable event.

An all-in-one fund soft-rebalances using the daily cash flows into the fund. In other words, from the point of view of a fund holder, the all-in-one fund soft-rebalances using the cash flows of other investors. That's really cool (and tax efficient, of course)!
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Leif
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Re: The One-Fund Portfolio as a default suggestion

Post by Leif »

longinvest wrote: Fri Apr 30, 2021 6:25 pm An all-in-one fund soft-rebalances using the daily cash flows into the fund. In other words, from the point of view of a fund holder, the all-in-one fund soft-rebalances using the cash flows of other investors. That's really cool (and tax efficient, of course)!
I was wondering about all-in-one fund versus two funds (equity and bonds). If you had both a taxable account and a tIRA, and each had 50% of your assets, which would be more tax efficient? 50% of the all-in-one in taxable and 50% in a tIRA. Versus, 50% of equities (lets say the same equities as in the all-in-one) in taxable and 50% bonds (again, the same funds as in the all-in-one) in a tIRA. Lets say for this example the all-in-one AA happened to match 50%/50% taxable vs. tIRA.

If one is more tax efficient than the other than by how much, assuming a 24% tax bracket? In other words, what price are you paying for a bit more hands off/simplicity assuming the two funds, in this configuration, is more tax efficient?
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Re: The One-Fund Portfolio as a default suggestion

Post by watchnerd »

I'm curious of about the relative tax impact of:

VSMGX in both taxable and tax sheltered

vs

VT in taxable / BNDW in tax sheltered
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longinvest
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Re: The One-Fund Portfolio as a default suggestion

Post by longinvest »

Leif and Watchnerd, I suggest reading the entire thread. I've addressed this topic in many posts. Here's one post, for example.

The question of forum member Tattarrattat was about a different topic. I've replied by explaining how an all-in-one fund soft-rebalances using the cash flows of other investors, which is really cool and tax efficient.
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watchnerd
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Re: The One-Fund Portfolio as a default suggestion

Post by watchnerd »

longinvest wrote: Fri Apr 30, 2021 7:31 pm Leif and Watchnerd, I suggest reading the entire thread. I've addressed this topic in many posts. Here's one post, for example.

The question of forum member Tattarrattat was about a different topic. I've replied by explaining how an all-in-one fund soft-rebalances using the cash flows of other investors, which is really cool and tax efficient.
Actual distributions and capital gains are still something to discuss, regardless of soft rebalancing theory.

Comparing the pieces:

VSMGX:

https://investor.vanguard.com/mutual-fu ... ions/vsmgx

Realized/unrealized gains
as of 03/31/2021

Realized capital gain/loss $0.46
Realized capital gain/loss as a % of NAV 1.43%
Fiscal year end 10/31/2021
Unrealized appreciation/depreciation $12.19
Unrealized appreciation/depreciation as a % of NAV 37.79%


VT:

https://investor.vanguard.com/etf/profi ... butions/vt

Realized/unrealized gains
as of 03/31/2021

Realized capital gain/loss -$2.07
Realized capital gain/loss as a % of NAV -2.13%
Fiscal year end 10/31/2021
Unrealized appreciation/depreciation $28.83
Unrealized appreciation/depreciation as a % of NAV 29.68%


BNDW:

https://investor.vanguard.com/etf/profi ... tions/bndw

Realized/unrealized gains
as of 03/31/2021

Realized capital gain/loss $0.07
Realized capital gain/loss as a % of NAV 0.09%
Fiscal year end 08/31/2021
Unrealized appreciation/depreciation -$0.81
Unrealized appreciation/depreciation as a % of NAV -1.02%

==========

Looking at the links above, one can see that VSMGX distributed Short Term and Long Term capital gains in December of 2020 and 2019.

VT and BNDW apparently didn't.
Last edited by watchnerd on Fri Apr 30, 2021 7:58 pm, edited 1 time in total.
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Leif
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Re: The One-Fund Portfolio as a default suggestion

Post by Leif »

longinvest wrote: Fri Apr 30, 2021 7:31 pm Leif and Watchnerd, I suggest reading the entire thread. I've addressed this topic in many posts. Here's one post, for example.

The question of forum member Tattarrattat was about a different topic. I've replied by explaining how an all-in-one fund soft-rebalances using the cash flows of other investors, which is really cool and tax efficient.
I think your soft rebalance refers to a fund net inflows. Is the same true if the fund experiences net outflow? It seems to me in that case you must have a hard rebalance.

I checked your first link, but I did not see it answered my question. I'll see if I can do a PV run to compare. I'm trying to make it as apples to apples as I can.
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Re: The One-Fund Portfolio as a default suggestion

Post by watchnerd »

Leif wrote: Fri Apr 30, 2021 7:57 pm
longinvest wrote: Fri Apr 30, 2021 7:31 pm Leif and Watchnerd, I suggest reading the entire thread. I've addressed this topic in many posts. Here's one post, for example.

The question of forum member Tattarrattat was about a different topic. I've replied by explaining how an all-in-one fund soft-rebalances using the cash flows of other investors, which is really cool and tax efficient.
I think your soft rebalance refers to a fund net inflows. Is the same true if the fund experiences net outflow? It seems to me in that case you must have a hard rebalance.

I checked your first link, but I did not see it answered my question. I'll see if I can do a PV run to compare. I'm trying to make it as apples to apples as I can.
If soft rebalancing alone is enough to get the job done, I don't see why the fund is kicking off both Short Term and Long Term capital gains every December for the last 2 years.
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Leif
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Re: The One-Fund Portfolio as a default suggestion

Post by Leif »

watchnerd wrote: Fri Apr 30, 2021 7:59 pm
Leif wrote: Fri Apr 30, 2021 7:57 pm
longinvest wrote: Fri Apr 30, 2021 7:31 pm Leif and Watchnerd, I suggest reading the entire thread. I've addressed this topic in many posts. Here's one post, for example.

The question of forum member Tattarrattat was about a different topic. I've replied by explaining how an all-in-one fund soft-rebalances using the cash flows of other investors, which is really cool and tax efficient.
I think your soft rebalance refers to a fund net inflows. Is the same true if the fund experiences net outflow? It seems to me in that case you must have a hard rebalance.

I checked your first link, but I did not see it answered my question. I'll see if I can do a PV run to compare. I'm trying to make it as apples to apples as I can.
If soft rebalancing alone is enough to get the job done, I don't see why the fund is kicking off both Short Term and Long Term capital gains every December for the last 2 years.
That's true. But rebalance is daily. So while the flow may be positive for a quarter or year, they may need to sell to buy (hard rebalance) on a shorter term, such as when the pandemic hit.

I've not yet found a good way to make a compare in PV between VSMGX and it components, divided into taxable and tax deferred. But to me it only make sense that for a tax sensitive investor putting bonds into a tIRA and stock into taxable must be more tax efficient, given other factors remain the same.

It is just of academic interest to me, since I have way more than 2 funds. But I am tax sensitive so I do my best to put tax inefficient funds in Roth or tIRA.
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Re: The One-Fund Portfolio as a default suggestion

Post by watchnerd »

Leif wrote: Fri Apr 30, 2021 8:16 pm But to me it only make sense that for a tax sensitive investor putting bonds into a tIRA and stock into taxable must be more tax efficient, given other factors remain the same.

It is just of academic interest to me, since I have way more than 2 funds. But I am tax sensitive so I do my best to put tax inefficient funds in Roth or tIRA.
It would appear that, yes, one could gain two benefits by deconstructing:

1. Shelter the bond dividends from taxes entirely (per usual)

2. Avoid uncontrolled capital gains that VSMGX kicks off by either rebalancing less frequently, and/or choosing SpecID lots to maximize long term capital gains vs short term
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Re: The One-Fund Portfolio as a default suggestion

Post by Leif »

watchnerd wrote: Fri Apr 30, 2021 8:23 pm
Leif wrote: Fri Apr 30, 2021 8:16 pm But to me it only make sense that for a tax sensitive investor putting bonds into a tIRA and stock into taxable must be more tax efficient, given other factors remain the same.

It is just of academic interest to me, since I have way more than 2 funds. But I am tax sensitive so I do my best to put tax inefficient funds in Roth or tIRA.
It would appear that, yes, one could gain two benefits by deconstructing:

1. Shelter the bond dividends from taxes entirely (per usual)

2. Avoid uncontrolled capital gains that VSMGX kicks off by either rebalancing less frequently, and/or choosing SpecID lots to maximize long term capital gains vs short term
I agree. Particularly if you are tax sensitive. While your AA will fluctuate more, it does give you more control on when to realize losses/gains. It is an acceptable trade-off for me.
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Re: The One-Fund Portfolio as a default suggestion

Post by watchnerd »

Leif wrote: Fri Apr 30, 2021 8:28 pm
I agree. Particularly if you are tax sensitive. While your AA will fluctuate more, it does give you more control on when to realize losses/gains. It is an acceptable trade-off for me.
I think it's an especially acceptable trade-off if one is using it as a Risk Portfolio, coupling it with an LMP portfolio of non-rolling laddered TIPS.

Your net AA won't be fluctuating as much and you have a bond income floor safety net, anyway.
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Re: The One-Fund Portfolio as a default suggestion

Post by Orange_Philosophy »

Longinvest -

Thanks for creating this thread. I've been strongly considering going to a single 60/40 fund across all of my accounts like life strategy VSMGX. I appreciate all the discussion back and forth on the suggestion as a default starter point from others in the thread as well. Perhaps it would help to illustrate how, in a practical sense, the choice between the two scenarios are for a given couple just entering retirement. Let's try my hypothetical as an example and let's assume the next 10 years will be more or less similar to the last 10 years to eliminate a lot of unknown variables.

Taxable - $1.3M
IRA - $500K
401K s 700K

1) Assume 60/40 mix by using Vanguard VSMGX (vanguard moderate life strategy fund) across all three accounts and withdrawing to minimize taxes.
2) Assume 60/40 mix by using VTI and BND by Taxable being 100% VTI and 100K each in VTI in IRA and 401Ks and the rest in BND. Have to assume that these funds or nearly identical performing funds can be purchased in the 401Ks.

Need total income of $105,000 per year with 50% being fixed and 50% being discretionary. Player in this hypothetical will have 18 months of fixed expenses in cash on hand in either scenario. Assume this couple is 62 on Jan 1 and will collect a total of 40K in SS. That would mean 65K withdrawals each year from some combination of the above accounts.

Hopefully this is enough information to game out this particular scenario.

Edit... Playing with my own spreadsheet. If I owned 1.3M of VSMGX in 2020 and my cost was about $32/share, my total shares would be 40,625. There were 4 distributions in 2020 -- three LT and one ST. According to the numbers from the VG website, the ST gains would be $5,403 and LT $39,024. VTI for the same period was about $190 per share. Again, according to the VG website, it would have thrown off $18,948 based on 6842 shares in LT CG. I need to pull more money to get to 65K above. According to yahoo finance, VSMGX has returned 8.26% over the last 10 years so we can get the remaining 25ishK from selling shares and we can most certainly do it with VTI as returns were higher even though we need about 46K because of the smaller distribution. In this scenario, the difference in the tax bill would be about $350 given a 22% marginal instead of LT cap gains of 15% since the total income isn't very high.

Assume further that this is an early retiree using the rule of 55. There would be forced withdrawals from tax sheltered creating more ordinary which would change the above scenario completely. I guess what I'm getting at is there is no clear answer even with a clear set of rules other that it is likely you'll pay a little more taxes with VSMGX but not necessarily especially if drawing from multiple sources.
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Re: The One-Fund Portfolio as a default suggestion

Post by longinvest »

Orange_Philosophy wrote: Tue May 25, 2021 1:48 pm Longinvest -

Thanks for creating this thread. I've been strongly considering going to a single 60/40 fund across all of my accounts like life strategy VSMGX. I appreciate all the discussion back and forth on the suggestion as a default starter point from others in the thread as well. Perhaps it would help to illustrate how, in a practical sense, the choice between the two scenarios are for a given couple just entering retirement. Let's try my hypothetical as an example and let's assume the next 10 years will be more or less similar to the last 10 years to eliminate a lot of unknown variables.

Taxable - $1.3M
IRA - $500K
401K s 700K

1) Assume 60/40 mix by using Vanguard VSMGX (vanguard moderate life strategy fund) across all three accounts and withdrawing to minimize taxes.
2) Assume 60/40 mix by using VTI and BND by Taxable being 100% VTI and 100K each in VTI in IRA and 401Ks and the rest in BND. Have to assume that these funds or nearly identical performing funds can be purchased in the 401Ks.

Need total income of $105,000 per year with 50% being fixed and 50% being discretionary. Player in this hypothetical will have 18 months of fixed expenses in cash on hand in either scenario. Assume this couple is 62 on Jan 1 and will collect a total of 40K in SS. That would mean 65K withdrawals each year from some combination of the above accounts.

Hopefully this is enough information to game out this particular scenario.

Edit... Playing with my own spreadsheet. If I owned 1.3M of VSMGX in 2020 and my cost was about $32/share, my total shares would be 40,625. There were 4 distributions in 2020 -- three LT and one ST. According to the numbers from the VG website, the ST gains would be $5,403 and LT $39,024. VTI for the same period was about $190 per share. Again, according to the VG website, it would have thrown off $18,948 based on 6842 shares in LT CG. I need to pull more money to get to 65K above. According to yahoo finance, VSMGX has returned 8.26% over the last 10 years so we can get the remaining 25ishK from selling shares and we can most certainly do it with VTI as returns were higher even though we need about 46K because of the smaller distribution. In this scenario, the difference in the tax bill would be about $350 given a 22% marginal instead of LT cap gains of 15% since the total income isn't very high.

Assume further that this is an early retiree using the rule of 55. There would be forced withdrawals from tax sheltered creating more ordinary which would change the above scenario completely. I guess what I'm getting at is there is no clear answer even with a clear set of rules other that it is likely you'll pay a little more taxes with VSMGX but not necessarily especially if drawing from multiple sources.
Orange_Philosophy,

You're comparing completely different portfolios: an all-in-one globally-diversified portfolio with a moderate home bias (VSMGX) and a two-fund single-country portfolio (VTI/BND).

I suggest starting a new thread in the Personal Investments forum to discuss your personal situation.

I think that properly rebalancing a globally-diversified four-fund portfolio across multiple accounts while maintaining a 60/40 stocks/bonds allocation, a 60/40 allocation to domestic/international stocks, and a 70/30 allocation to domestic/international bonds, when prioritizing the placement of specific assets into specific accounts, is relatively complex for many ordinary investors. While it can seem simple for people who eat maths for breakfast, most people just get lost into the details. I suggest to read the Two-Step Rebalancing thread where I attempted to explain one of the simplest approaches to do it while avoiding wash sales, keeping assets allocated according to their location priorities, and not letting the allocation stray too far from target. My wife couldn't do it without the spreadsheet I built for her. That was one of the big motivators that lead me to adopt a One-ETF Portfolio.

Just describing the normal process of rebalancing a multi-asset portfolio across accounts in the linked thread seemed complex to many readers. That's when I realized that probably most people just don't rebalance their portfolio across accounts, or, when they do, the don't fully respect asset location priorities because it's just too much hassle.

A One-Fund Portfolio is significantly simpler to manage.
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Re: The One-Fund Portfolio as a default suggestion

Post by Orange_Philosophy »

longinvest wrote: Tue May 25, 2021 6:40 pm You're comparing completely different portfolios: an all-in-one globally-diversified portfolio with a moderate home bias (VSMGX) and a two-fund single-country portfolio (VTI/BND).

I think that properly rebalancing a globally-diversified four-fund portfolio across multiple accounts while maintaining a 60/40 stocks/bonds allocation, a 60/40 allocation to domestic/international stocks, and a 70/30 allocation to domestic/international bonds, when prioritizing the placement of specific assets into specific accounts, is relatively complex for many ordinary investors. While it can seem simple for people who eat maths for breakfast, most people just get lost into the details. ...... That was one of the big motivators that lead me to adopt a One-ETF Portfolio.

Just describing the normal process of rebalancing a multi-asset portfolio across accounts in the linked thread seemed complex to many readers. That's when I realized that probably most people just don't rebalance their portfolio across accounts, or, when they do, the don't fully respect asset location priorities because it's just too much hassle.

A One-Fund Portfolio is significantly simpler to manage.
Thanks for the clarification. In my "real world example" I should have used a 4-fund that more closely mirrors VSMGX. But then that makes your point even clearer. I can most certainly create complex spreadsheets and, in fact, have a sheet called "mix" which currently weighs everything I own across all investments and totals them into US Equity, International Equity, US Bonds, International Bonds, and Cash. As I started working on that sheet and realizing that I would need to make an effort of "more than zero" when comparing balancing and managing VSMGX to alternatives, the question is how much more than zero and second, how much is it worth to me to not have to make that effort? After digging through my own spreadsheet, the normal scenario might be hundreds of dollars annually that I might lose in tax efficiency. At the end of the day, that's meaningless for me. Perhaps big movements in markets one way or the other or when RMDs start kicking in that will change but early on in retirement (a handful of years away), I'm leaning more and more toward "good enough".

Thanks again.

[Nested quoting fixed by moderator oldcomputerguy]
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Re: The One-Fund Portfolio as a default suggestion

Post by StevieG72 »

The expense ratio on these one and done funds leaves me wanting to DIY and buy the individual funds. My portfolio tends to drift towards heavier stock allocations when I manage it myself as well.
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Re: The One-Fund Portfolio as a default suggestion

Post by watchnerd »

StevieG72 wrote: Tue May 25, 2021 9:30 pm The expense ratio on these one and done funds leaves me wanting to DIY and buy the individual funds. My portfolio tends to drift towards heavier stock allocations when I manage it myself as well.

I think of the ER as a convenience fee.

It's the unwanted and uncontrollable cap gains if held in taxable that stops me.
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Re: The One-Fund Portfolio as a default suggestion

Post by tj »

watchnerd wrote: Tue May 25, 2021 9:49 pm
StevieG72 wrote: Tue May 25, 2021 9:30 pm The expense ratio on these one and done funds leaves me wanting to DIY and buy the individual funds. My portfolio tends to drift towards heavier stock allocations when I manage it myself as well.

I think of the ER as a convenience fee.

It's the unwanted and uncontrollable cap gains if held in taxable that stops me.
It's not like the ER is seem massively high fee.
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Re: The One-Fund Portfolio as a default suggestion

Post by NiceUnparticularMan »

tj wrote: Tue May 25, 2021 10:10 pm
watchnerd wrote: Tue May 25, 2021 9:49 pm
StevieG72 wrote: Tue May 25, 2021 9:30 pm The expense ratio on these one and done funds leaves me wanting to DIY and buy the individual funds. My portfolio tends to drift towards heavier stock allocations when I manage it myself as well.

I think of the ER as a convenience fee.

It's the unwanted and uncontrollable cap gains if held in taxable that stops me.
It's not like the ER is seem massively high fee.
Indeed. I would generally suggest that if you estimated the average annualized cost to personal investors of various behavioral mistakes, it would be far higher.
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Re: The One-Fund Portfolio as a default suggestion

Post by Silence Dogood »

NiceUnparticularMan wrote: Wed May 26, 2021 8:11 am
tj wrote: Tue May 25, 2021 10:10 pm
watchnerd wrote: Tue May 25, 2021 9:49 pm
StevieG72 wrote: Tue May 25, 2021 9:30 pm The expense ratio on these one and done funds leaves me wanting to DIY and buy the individual funds. My portfolio tends to drift towards heavier stock allocations when I manage it myself as well.

I think of the ER as a convenience fee.

It's the unwanted and uncontrollable cap gains if held in taxable that stops me.
It's not like the ER is seem massively high fee.
Indeed. I would generally suggest that if you estimated the average annualized cost to personal investors of various behavioral mistakes, it would be far higher.
The difference in expense ratio is inconsequential.

For example*:

Code: Select all

January 2018 through December 2020:

Portfolio 1:     Portfolio 2**:

VFFVX 100%       VTI: 54.2%
                 VXUS: 36.3%
                 BND: 6.5%
                 BNDX: 3%
                        
Inflation-adjusted CAGR:

Portfolio 1:     Portfolio 2:
                        
8.22%            8.16%

*Assuming no behavioral errors.
**Portfolio 2 reblanced annually.
GoneOnTilt
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Re: The One-Fund Portfolio as a default suggestion

Post by GoneOnTilt »

longinvest wrote: Mon Aug 12, 2019 8:10 am I think that the following could be a good default portfolio suggested in answer to many queries about portfolio construction:
  • Portfolio 1: Vanguard LifeStrategy Moderate Growth Fund (VSMGX) -- a globally-diversified balanced index portfolio with a moderate home bias, appropriate for investors of all ages and all wealth levels, or
  • Portfolio 2: A carefully-chosen all-in-one index fund or ETF with a gliding or fixed asset allocation based on the investor's circumstances -- low-cost Target Retirement / Target Date index fund (various providers), Vanguard LifeStrategy fund (VASGX 80/20 stocks/bonds, VSMGX 60/40 stocks/bonds, VSCGX 40/60 stocks/bonds, or VASIX 20/80 stocks/bonds), or iShares Core Allocation ETF (AOA 80/20 stocks/bonds, AOR 60/40 stocks/bonds, AOM 40/60 stocks/bonds, or AOK 30/70 stocks/bonds)
In theory, the "ideal" default portfolio would be William Sharpe's Market Portfolio but it has various problems: (a) calculating asset weights is challenging, (b) the actual weightings are approximate because float-adjusted market capitalisations corresponding to Vanguard's total world stocks (VT) and bonds (BNDW) aren't all available*, and (c) there are good reasons for most investors (around the world) to keep a reasonable amount of home bias in their portfolios, as explained in Vanguard's paper "The role of home bias in global asset allocation decisions".

* They aren't available for free, if they're available.

As a consequence, I think that portfolio 1 is a very good default portfolio for investors of all ages and all wealth levels. This includes experienced investors who have finally realized the importance simplicity as well as the futility of trying to engineer a better portfolio, accumulating investors who want to spend their life doing other things than worrying about their portfolio, and even new investors who don't know how to choose an asset allocation. It has a fixed 60/40 stocks/bonds allocation. It's very broadly-diversified, currently holding over 25,000 securities. It's actually a very good practical proxy for Bill Sharpe's ideal Market Portfolio adapted for a U.S. investor with a moderate home bias.

Investors who desire a specific gliding or fixed asset allocation can go with portfolio 2 and choose among the various available all-in-one index funds and ETFs. This is somewhat more complex than portfolio 1 as it requires making more assumptions about assets and about the investor's preferences.

I think that these funds and ETFs are good enough to be used as a single identical investment across all of the investor's accounts (Traditional, Roth, ..., and even taxable).

I think that most tax-efficient fund placement arguments against using such funds in a taxable account are flawed because they usually ignore tax-adjusted asset allocation which is justified by mathematics:
Bogleheads wiki wrote:Your ability to take risk is determined by the consequences of losses; losing $100K in your Roth IRA will reduce your standard of living (or require more additional savings to keep the same standard) by more than losing $100K in your traditional IRA or taxable account does.
In particular:
  • Most analyses ignore the long-term impact of asset location. For example, while bonds get most of their growth from coupons which attract immediate taxes, unlike stock capital gains which are only taxed when realized often decades later (leading simple analyses to conclude that one should prioritize bonds over stocks in tax-advantaged accounts), a long-term view can reveal that the generally faster growth of stocks might lead to more taxes when stock dividends in taxable grow to more than bond interest in tax-advantaged. Also, prioritizing the placement of a slower growing asset in tax-advantaged leads to a slower growth of tax-advantaged space relative to the size of the entire portfolio.
  • Most analyses ignore that rebalancing reduces the impact (good or bad) of prioritizing the location of specific assets into specific accounts.
  • Most analyses ignore the tax advantage of rebalancing with the cash flows of other investors when using a balanced fund or ETF in a taxable account.
  • Most analyses ignore that future tax laws could change, that future investor circumstances could change, and that the best asset location strategy can only be known after the fact.
I think that using a mirrored asset allocation in all accounts with a single identical all-in-one fund or ETF is good enough and elegantly sidesteps the need to tax-adjust the asset allocation.**

** A mirrored asset allocation is inherently tax-adjusted.

The use of a single identical all-in-one index fund or ETF in all accounts greatly simplifies a portfolio, eliminates the need to rebalance, and sidesteps a long list of potential behavioral pitfalls. Many investors are likely to lose more to behavioral pitfalls with separate funds or ETFs than to save in taxes even when they're lucky enough to select an asset location strategy that beats the mirrored one (unforeseeable) in their specific long-term investing time frame.

My personal preference is for portfolio 1, representing a globally-diversified lifelong 60/40 stocks/bonds allocation because I consider that all investment assets are risky, but in different ways. I think that it's best to broadly diversify across them all lifelong***.

*** In retirement, combining variable portfolio withdrawals with Social Security (possibly delayed to age 70) and a pension (if any) often results into mild total income fluctuations. When necessary, Total Retirement Income fluctuations can be further dampened by using a small part of the portfolio to buy an inflation-indexed Single Premium Immediate Annuity (SPIA) instead of increasing the bond allocation above 40%.
I've really come to the conclusion that I want to come as close as possible to a one-fund solution. This is a great thread. The problem is that in my taxable account I own stock index funds with significant taxable gains. But I have no problem holding lifestrategy funds and asset allocation ETFs in my taxable accounts. So I am using them partially there. I should be able to get there fully over time as I enter the withdrawal phase and withdraw from stock funds first.

Thanks for the thread.
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longinvest
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Re: The One-Fund Portfolio as a default suggestion

Post by longinvest »

GoneOnTilt wrote: Tue Jun 22, 2021 5:08 pm I've really come to the conclusion that I want to come as close as possible to a one-fund solution. This is a great thread. The problem is that in my taxable account I own stock index funds with significant taxable gains. But I have no problem holding lifestrategy funds and asset allocation ETFs in my taxable accounts. So I am using them partially there. I should be able to get there fully over time as I enter the withdrawal phase and withdraw from stock funds first.

Thanks for the thread.
GoneOnTilt, thanks for the nice comments.

The ironic thing is that most of those who oppose using an all-in-one fund in a taxable account complain that the tax cost of switching out of it later will be too high. What they don't seem to realize is that it's even worse for a stock-only fund which is likely to accumulate significantly more unrealized gains and, therefore, become significantly more expensive to switch out of. The same applies to stock fund dividends which usually grow faster than all-in-one fund dividends and, eventually, get bigger, possibly attracting more annual taxes at a time when the investor might be earning peak salary.

I prefer the simplicity of a One-Fund Portfolio. I can get most of the advantages of tax-sheltered investing by simply filling tax-sheltered accounts before adding money into a taxable account. I think that it's good enough.
Variable Percentage Withdrawal (bogleheads.org/wiki/VPW) | One-Fund Portfolio (bogleheads.org/forum/viewtopic.php?t=287967)
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Re: The One-Fund Portfolio as a default suggestion

Post by GoneOnTilt »

longinvest wrote: Mon Aug 12, 2019 8:10 am I think that using a mirrored asset allocation in all accounts with a single identical all-in-one fund or ETF is good enough and elegantly sidesteps the need to tax-adjust the asset allocation.**
I chose a mirrored asset allocation approach quite a while ago and have found it much easier to deal with. Tax considerations are secondary to simplicity for me in this regard.
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Re: The One-Fund Portfolio as a default suggestion

Post by Dregob »

longinvest wrote: Sat Aug 17, 2019 7:15 pm
MrJones wrote: Sat Aug 17, 2019 6:41 pm Talk is cheap. Numbers don't lie. What do the numbers say? Without that, this is a dead end.

Single funds have been around for a while. Why should anyone believe your statements with no basic analysis to back it up?
Dear MrJones,

I've provided the logic.

I don't know what the future returns of domestic stocks and bonds will be, on a month by month basis, over my lifetime. I don't know how much salary I'll exactly get between now and retirement. I don't even know when I'll retire. In retirement, I don't know the exact amounts that will be withdrawn from my various accounts on a yearly basis, and the exact amount of other income. I don't know how much I'll incur in health expenses that give place to tax relief. The future is too uncertain for me to make precise calculations.

Our wiki page on tax-efficient fund placement promotes a specific strategy, but admits that it might prove to be a poor choice (and it mostly ignores the risk-adjusted impact of its promoted strategy, which is relegated to a different page on tax-adjusted asset allocation):

Tax-efficient fund placement
What was a logical tax location one year may turn out to be a poor choice a few years later. Consider if it's worth the effort (added complexity) to take this approach.
I'm suggesting a simpler strategy that requires fewer assumptions and that is resilient to an uncertain future (taxes, circumstances, etc).

"When there are multiple solutions to a problem, choose the simplest one." -- Jack Bogle

Best regards,

longinvest
Bogle was simply rephrasing Occam's Razor.
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Re: The One-Fund Portfolio as a default suggestion

Post by GoneOnTilt »

Dregob wrote: Wed Jul 07, 2021 8:05 pm
longinvest wrote: Sat Aug 17, 2019 7:15 pm
MrJones wrote: Sat Aug 17, 2019 6:41 pm Talk is cheap. Numbers don't lie. What do the numbers say? Without that, this is a dead end.

Single funds have been around for a while. Why should anyone believe your statements with no basic analysis to back it up?
Dear MrJones,

I've provided the logic.

I don't know what the future returns of domestic stocks and bonds will be, on a month by month basis, over my lifetime. I don't know how much salary I'll exactly get between now and retirement. I don't even know when I'll retire. In retirement, I don't know the exact amounts that will be withdrawn from my various accounts on a yearly basis, and the exact amount of other income. I don't know how much I'll incur in health expenses that give place to tax relief. The future is too uncertain for me to make precise calculations.

Our wiki page on tax-efficient fund placement promotes a specific strategy, but admits that it might prove to be a poor choice (and it mostly ignores the risk-adjusted impact of its promoted strategy, which is relegated to a different page on tax-adjusted asset allocation):

Tax-efficient fund placement
What was a logical tax location one year may turn out to be a poor choice a few years later. Consider if it's worth the effort (added complexity) to take this approach.
I'm suggesting a simpler strategy that requires fewer assumptions and that is resilient to an uncertain future (taxes, circumstances, etc).

"When there are multiple solutions to a problem, choose the simplest one." -- Jack Bogle

Best regards,

longinvest
Bogle was simply rephrasing Occam's Razor.
And?
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Re: The One-Fund Portfolio as a default suggestion

Post by etfan »

longinvest wrote: Mon Aug 12, 2019 8:10 am
  • Portfolio 1: Vanguard LifeStrategy Moderate Growth Fund (VSMGX) -- a globally-diversified balanced index portfolio with a moderate home bias, appropriate for investors of all ages and all wealth levels, or
  • Portfolio 2: A carefully-chosen all-in-one index fund or ETF with a gliding or fixed asset allocation based on the investor's circumstances -- low-cost Target Retirement / Target Date index fund (various providers), Vanguard LifeStrategy fund (VASGX 80/20 stocks/bonds, VSMGX 60/40 stocks/bonds, VSCGX 40/60 stocks/bonds, or VASIX 20/80 stocks/bonds), or iShares Core Allocation ETF (AOA 80/20 stocks/bonds, AOR 60/40 stocks/bonds, AOM 40/60 stocks/bonds, or AOK 30/70 stocks/bonds)
This list may be confusing. Number (2) partially contains Number (1). Seems the categorization is:

(1) An all-in-one fund with a fixed asset allocation across all accounts (provide example funds, like Life Strategy, along with a preferred one)
(2) An all-in-one fund with a gliding allocation across all accounts (provide examples of target date funds, etc.)
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Re: The One-Fund Portfolio as a default suggestion

Post by sycamore »

etfan wrote: Wed Jul 14, 2021 10:01 am
longinvest wrote: Mon Aug 12, 2019 8:10 am
  • Portfolio 1: Vanguard LifeStrategy Moderate Growth Fund (VSMGX) -- a globally-diversified balanced index portfolio with a moderate home bias, appropriate for investors of all ages and all wealth levels, or
  • Portfolio 2: A carefully-chosen all-in-one index fund or ETF with a gliding or fixed asset allocation based on the investor's circumstances -- low-cost Target Retirement / Target Date index fund (various providers), Vanguard LifeStrategy fund (VASGX 80/20 stocks/bonds, VSMGX 60/40 stocks/bonds, VSCGX 40/60 stocks/bonds, or VASIX 20/80 stocks/bonds), or iShares Core Allocation ETF (AOA 80/20 stocks/bonds, AOR 60/40 stocks/bonds, AOM 40/60 stocks/bonds, or AOK 30/70 stocks/bonds)
This list may be confusing. Number (2) partially contains Number (1). Seems the categorization is:

(1) An all-in-one fund with a fixed asset allocation across all accounts (provide example funds, like Life Strategy, along with a preferred one)
(2) An all-in-one fund with a gliding allocation across all accounts (provide examples of target date funds, etc.)
That's a reasonable way to compare them. But the key to understanding longinvest's distinction between portfolio 1 and 2 split is this other quote from the OP:
longinvest wrote: Mon Aug 12, 2019 8:10 am I think that the following could be a good default portfolio suggested in answer to many queries about portfolio construction:
I take that to mean portfolio 1 is a good default portfolio, period. Indeed, if an investor didn't want to consider any other factors, VSMGX is a good suggestion.

The portfolio 2 group is for investors who do have other considerations, e.g., an AA determined by personal risk tolerance, desire for a a glide path, etc.
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Re: The One-Fund Portfolio as a default suggestion

Post by etfan »

sycamore wrote: Wed Jul 14, 2021 11:07 am That's a reasonable way to compare them. But the key to understanding longinvest's distinction between portfolio 1 and 2 split is this other quote from the OP:
longinvest wrote: Mon Aug 12, 2019 8:10 am I think that the following could be a good default portfolio suggested in answer to many queries about portfolio construction:
I take that to mean portfolio 1 is a good default portfolio, period. Indeed, if an investor didn't want to consider any other factors, VSMGX is a good suggestion.

The portfolio 2 group is for investors who do have other considerations, e.g., an AA determined by personal risk tolerance, desire for a a glide path, etc.
That makes sense. I just meant to say that I had trouble understanding it. As stated, those are not two portfolios but rather two choices for how to pick a portfolio.

One way to state that intent would be:

Step 1: If you don't know how to choose, then pick Vanguard Life Strategy Moderate Growth (VSMGX) across all accounts and you're done.

Step 2: If you believe the default above is too aggressive or too conservative, or you think it should adapt over time, then pick any of the other Life Strategy funds or a target date fund. Do the same across all accounts and you're done.
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Re: The One-Fund Portfolio as a default suggestion

Post by longinvest »

etfan wrote: Wed Jul 14, 2021 4:36 pm Step 1: If you don't know how to choose, then pick Vanguard Life Strategy Moderate Growth (VSMGX) across all accounts and you're done.
Etfan, I disagree because your text implies that the the Vanguard LifeStrategy Moderate Growth Fund (VSMGX) suggestion, Portfolio 1, is primarily targeted at new investors who don't know how to allocate their portfolio.

On the contrary, I think that the Portfolio 1 (VSMGX) suggestion might be most adopted by very knowledgeable and experienced investors who are seeking the ultimate sophistication, simplicity. Here's what I wrote in the first post: "I think that portfolio 1 is a very good default portfolio for investors of all ages and all wealth levels. This includes experienced investors who have finally realized the importance simplicity as well as the futility of trying to engineer a better portfolio, ...".

I provided a detailed discussion of the Portfolio 1 (VSMGX) suggestion in this post, which I suggest reading.
Variable Percentage Withdrawal (bogleheads.org/wiki/VPW) | One-Fund Portfolio (bogleheads.org/forum/viewtopic.php?t=287967)
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Re: The One-Fund Portfolio as a default suggestion

Post by David Jay »

etfan wrote: Wed Jul 14, 2021 4:36 pmOne way to state that intent would be:

Step 1: If you don't know how to choose, then pick Vanguard Life Strategy Moderate Growth (VSMGX) across all accounts and you're done.

Step 2: If you believe the default above is too aggressive or too conservative, or you think it should adapt over time, then pick any of the other Life Strategy funds or a target date fund. Do the same across all accounts and you're done.
This first step reminds me of Neurosphere’s famous quote (specifically for those who only have individual funds and Target Date funds in their 401Ks): “If you don’t know if a Target Date fund is right for you, it is.
It's not an engineering problem - Hersh Shefrin | To get the "risk premium", you really do have to take the risk - nisiprius
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Re: The One-Fund Portfolio as a default suggestion

Post by etfan »

longinvest wrote: Wed Jul 14, 2021 8:38 pm
etfan wrote: Wed Jul 14, 2021 4:36 pm Step 1: If you don't know how to choose, then pick Vanguard Life Strategy Moderate Growth (VSMGX) across all accounts and you're done.
Etfan, I disagree because your text implies that the the Vanguard LifeStrategy Moderate Growth Fund (VSMGX) suggestion, Portfolio 1, is primarily targeted at new investors who don't know how to allocate their portfolio.
I meant it differently. "If you don't know how to choose", then follow what the experts have already chosen (i.e. take advantage of their work). But this is all semantics.
I provided a detailed discussion of the Portfolio 1 (VSMGX) suggestion in this post, which I suggest reading.
Thanks. This thread has a of thought-provoking ideas (including the opposing views) that I'm learning from.

The idea of having an all-in-one fund in a taxable account is scary because:

(1) It would be costly to change my mind in the future. It's cheaper to change my mind with 3 separate funds, since I only have to sell a smaller amount of equities/bonds to rebalance or even to change the AA entirely (say, from 60/40 to 70/30 if I want). With a single fund, I have to sell all of it for the smallest tweak!

(2) I have read what you said about putting bonds in a taxable account, but I'm trying to find concrete numbers. By my own math, VSMGX had about $3,455 distributions per $100,000 in one year. I wonder if my math is correct, because if it is, the tax problem could get bad as your account grows. On the other hand, VTI (total stock) was half of that. BND (total bond) was $2,000. The good news is, for a person who has most of their savings in tax-sheltered accounts and keeps their taxable accounts relatively small, this may not be a big deal.

Edit: You may have addressed (2) here:

viewtopic.php?t=287967&start=250
Last edited by etfan on Thu Jul 15, 2021 12:34 am, edited 1 time in total.
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Re: The One-Fund Portfolio as a default suggestion

Post by etfan »

David Jay wrote: Wed Jul 14, 2021 9:08 pm This first step reminds me of Neurosphere’s famous quote (specifically for those who only have individual funds and Target Date funds in their 401Ks): “If you don’t know if a Target Date fund is right for you, it is.
Hah! Target date funds are even more "fool-proof" than Life Strategy funds. You choose nothing at all, aside from the year you wish to retire, and the "experts" do the rest.

Life Strategy doesn't have that "feature". It gives you more control that you may be comfortable with (i.e. picking the specific AA and deciding to never change it).
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Re: The One-Fund Portfolio as a default suggestion

Post by NiceUnparticularMan »

etfan wrote: Thu Jul 15, 2021 12:06 am
The idea of having an all-in-one fund in a taxable account is scary because:

(1) It would be costly to change my mind in the future.
You say that like it would be a bad thing!
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Re: The One-Fund Portfolio as a default suggestion

Post by etfan »

NiceUnparticularMan wrote: Thu Jul 15, 2021 5:49 am
etfan wrote: Thu Jul 15, 2021 12:06 am
The idea of having an all-in-one fund in a taxable account is scary because:

(1) It would be costly to change my mind in the future.
You say that like it would be a bad thing!
Yes. It's one thing to want to stay the course. But that doesn't mean you'd want to have no other choice, especially if it turns out you made a mistake.
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Re: The One-Fund Portfolio as a default suggestion

Post by David Jay »

NiceUnparticularMan wrote: Thu Jul 15, 2021 5:49 am
etfan wrote: Thu Jul 15, 2021 12:06 am
The idea of having an all-in-one fund in a taxable account is scary because:

(1) It would be costly to change my mind in the future.
You say that like it would be a bad thing!
:happy
It's not an engineering problem - Hersh Shefrin | To get the "risk premium", you really do have to take the risk - nisiprius
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Re: The One-Fund Portfolio as a default suggestion

Post by withrye »

etfan wrote: Thu Jul 15, 2021 7:54 am
NiceUnparticularMan wrote: Thu Jul 15, 2021 5:49 am
etfan wrote: Thu Jul 15, 2021 12:06 am
The idea of having an all-in-one fund in a taxable account is scary because:

(1) It would be costly to change my mind in the future.
You say that like it would be a bad thing!
Yes. It's one thing to want to stay the course. But that doesn't mean you'd want to have no other choice, especially if it turns out you made a mistake.
I have waffled on this very decision for a long while (details are in my post history), but I've settled on VSMGX in taxable even in a high tax bracket.

You always have a choice to change your mind, but as you say it could be quite costly. But that might be ok. Divorce is costly, meaning you really have to accept that continuing the marriage would be ruinous as compared to staying together. It's only a partly tongue-in-cheek analogy, but will VSMGX ever be so bad as to force an entire sale of the portfolio?

A slight reframing of the argument above is that choosing a 3-fund portfolio is also a "locked-in" choice for manual rebalancing forever. You can of course adjust your asset allocation (accepting the behavioral risk that you may make poor decisions when tempted to time the market), but the bigger commitment is to rebalancing. You can't go to maximum simplicity without a huge tax cost. When starting with a one-fund portfolio, however, you can easily add more stock/bond if you decide that you need a new asset allocation and you're willing to commit to rebalancing.

So with the one-fund you can always add complexity, but with the 3-fund you can't easily go back to simplicity.
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Re: The One-Fund Portfolio as a default suggestion

Post by NiceUnparticularMan »

withrye wrote: Mon Jul 19, 2021 4:46 pm
etfan wrote: Thu Jul 15, 2021 7:54 am
NiceUnparticularMan wrote: Thu Jul 15, 2021 5:49 am
etfan wrote: Thu Jul 15, 2021 12:06 am
The idea of having an all-in-one fund in a taxable account is scary because:

(1) It would be costly to change my mind in the future.
You say that like it would be a bad thing!
Yes. It's one thing to want to stay the course. But that doesn't mean you'd want to have no other choice, especially if it turns out you made a mistake.
I have waffled on this very decision for a long while (details are in my post history), but I've settled on VSMGX in taxable even in a high tax bracket.

You always have a choice to change your mind, but as you say it could be quite costly. But that might be ok. Divorce is costly, meaning you really have to accept that continuing the marriage would be ruinous as compared to staying together. It's only a partly tongue-in-cheek analogy, but will VSMGX ever be so bad as to force an entire sale of the portfolio?

A slight reframing of the argument above is that choosing a 3-fund portfolio is also a "locked-in" choice for manual rebalancing forever. You can of course adjust your asset allocation (accepting the behavioral risk that you may make poor decisions when tempted to time the market), but the bigger commitment is to rebalancing. You can't go to maximum simplicity without a huge tax cost. When starting with a one-fund portfolio, however, you can easily add more stock/bond if you decide that you need a new asset allocation and you're willing to commit to rebalancing.

So with the one-fund you can always add complexity, but with the 3-fund you can't easily go back to simplicity.
I note your point only clicked for me relatively recently when I head a health crisis that caused me to reconsider the complexity of my approach in the event I am not available to keep managing it. But now we are "stuck" with a bunch of ETFs in a taxable account that we could only convert to a simple approach if we were willing to take on significant capital gains.

So my current plan is to simplify into a MOSTLY one-fund plan no later than retirement, but leave that portion of the taxable account that way, de facto balanced out with the TSP G Fund.

And yet that is still not fully satisfying. So it is definitely not just a one-way issue.
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Re: The One-Fund Portfolio as a default suggestion

Post by etfan »

withrye wrote: Mon Jul 19, 2021 4:46 pm
etfan wrote: Thu Jul 15, 2021 7:54 am
NiceUnparticularMan wrote: Thu Jul 15, 2021 5:49 am
etfan wrote: Thu Jul 15, 2021 12:06 am
The idea of having an all-in-one fund in a taxable account is scary because:

(1) It would be costly to change my mind in the future.
You say that like it would be a bad thing!
Yes. It's one thing to want to stay the course. But that doesn't mean you'd want to have no other choice, especially if it turns out you made a mistake.
....

A slight reframing of the argument above is that choosing a 3-fund portfolio is also a "locked-in" choice for manual rebalancing forever.
That's true. Any decision regarding one's funds in a taxable account would be costly to change.
... will VSMGX ever be so bad as to force an entire sale of the portfolio?
The scenario is I commit to that approach and then in the future I end up with unsustainable tax costs. That is not a risk with an AA that has zero bonds in taxable.
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Re: The One-Fund Portfolio as a default suggestion

Post by etfan »

NiceUnparticularMan wrote: Mon Jul 19, 2021 4:57 pm I note your point only clicked for me relatively recently when I head a health crisis that caused me to reconsider the complexity of my approach in the event I am not available to keep managing it.
That is exactly why I find the concept attractive as well.
So my current plan is to simplify into a MOSTLY one-fund plan no later than retirement, but leave that portion of the taxable account that way, de facto balanced out with the TSP G Fund.
The problem with "switching" to the one fund approach while hanging on to all the other funds is that if the goal is to simplify the portfolio, this just complicates it further. If I'm not happy with the number of funds I currently have, the solution is not to add yet one more to them!

So I could either move money slowly from the other funds to the one fund over time, or do it only when I can sell some lots at a loss. So I go from managing a complicated portfolio to managing a complicated transition :)
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Re: The One-Fund Portfolio as a default suggestion

Post by NiceUnparticularMan »

etfan wrote: Mon Jul 19, 2021 5:52 pm
NiceUnparticularMan wrote: Mon Jul 19, 2021 4:57 pm So my current plan is to simplify into a MOSTLY one-fund plan no later than retirement, but leave that portion of the taxable account that way, de facto balanced out with the TSP G Fund.
The problem with "switching" to the one fund approach while hanging on to all the other funds is that if the goal is to simplify the portfolio, this just complicates it further. If I'm not happy with the number of funds I currently have, the solution is not to add yet one more to them!

So I could either move money slowly from the other funds to the one fund over time, or do it only when I can sell some lots at a loss. So I go from managing a complicated portfolio to managing a complicated transition :)
I mean it is all relative.

Currently I don't even know how many different funds/ETFs we are invested in (obviously I could look it up, but it would take that sort of effort for me to know). That is basically because we have a lot of different accounts (two current employer accounts (one with both a traditional and Roth component), a third older employer account (the TSP) I am leaving open for future use, a cash-balance pension, an HSA, two Roth IRAs, and a taxable account), and I had a relative complex allocation plan that when applied over these accounts with their different options (including some TLH in the taxable account), it ended up quite the mess. Nothing I can't manage with my spreadsheet and a certain devil-may-care attitude toward exact allocations, but still I am the notable failure point in that.

At least once we are retired we can partially consolidate the employer accounts and IRAs (although part of me still wonders if we really should give up access to the stable value fund in the one employer plan--this is already slipping back to old habits, but I believe we could just send the Roth part of that to the Roth IRA, and leave the traditional part behind to use the stable value fund . . . ). And we can mirror all those accounts with a one fund approach without tax consequences.

But the plan was always to transfer the one employer account into the TSP to make use of the G Fund. The TSP has suitable one-funds for mirroring purposes (more or less) too, but as noted my current plan is we could maybe just start with as much G as we need to get to the target ratio with the taxable stock ETFs we have built up.

So I wouldn't have to add a one-fund in taxable, I would be going to mirrored one-funds everywhere without tax consequences and then using this taxable ETF/G strategy to mirror the rest. And I would still be left with a bunch of ETFs but I would be mentally treating that as just a single stock allocation. I'd also be planning to spend any dividends and such spinning out of the taxable ETFs, so there wouldn't be any need for somewhere to put them.

I don't know. As noted I am not fully satisfied with this, but at least it overall would be a lot simpler than the status quo. But if the taxable have been in a one-fund from the beginning, it could be simpler still.
Dregob
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Re: The One-Fund Portfolio as a default suggestion

Post by Dregob »

GoneOnTilt wrote: Thu Jul 08, 2021 12:45 pm
Dregob wrote: Wed Jul 07, 2021 8:05 pm
longinvest wrote: Sat Aug 17, 2019 7:15 pm
MrJones wrote: Sat Aug 17, 2019 6:41 pm Talk is cheap. Numbers don't lie. What do the numbers say? Without that, this is a dead end.

Single funds have been around for a while. Why should anyone believe your statements with no basic analysis to back it up?
Dear MrJones,

I've provided the logic.

I don't know what the future returns of domestic stocks and bonds will be, on a month by month basis, over my lifetime. I don't know how much salary I'll exactly get between now and retirement. I don't even know when I'll retire. In retirement, I don't know the exact amounts that will be withdrawn from my various accounts on a yearly basis, and the exact amount of other income. I don't know how much I'll incur in health expenses that give place to tax relief. The future is too uncertain for me to make precise calculations.

Our wiki page on tax-efficient fund placement promotes a specific strategy, but admits that it might prove to be a poor choice (and it mostly ignores the risk-adjusted impact of its promoted strategy, which is relegated to a different page on tax-adjusted asset allocation):

Tax-efficient fund placement
What was a logical tax location one year may turn out to be a poor choice a few years later. Consider if it's worth the effort (added complexity) to take this approach.
I'm suggesting a simpler strategy that requires fewer assumptions and that is resilient to an uncertain future (taxes, circumstances, etc).

"When there are multiple solutions to a problem, choose the simplest one." -- Jack Bogle

Best regards,

longinvest
Bogle was simply rephrasing Occam's Razor.
And?
It's called Occam's razor, not Bogle's razor. Just giving credit where credit is due.
Blue456
Posts: 2152
Joined: Tue Jun 04, 2019 5:46 am

Re: The One-Fund Portfolio as a default suggestion

Post by Blue456 »

One suggestion that I can think of in here is that Vanguard mutual funds limit you to Vanguard. I would rather pick something like iShares AOR which is an ETF and can be moved between different brokerages as needed.
GoneOnTilt
Posts: 1841
Joined: Fri Sep 28, 2018 4:59 pm

Re: The One-Fund Portfolio as a default suggestion

Post by GoneOnTilt »

Dregob wrote: Thu Jul 22, 2021 11:22 pm
GoneOnTilt wrote: Thu Jul 08, 2021 12:45 pm
Dregob wrote: Wed Jul 07, 2021 8:05 pm
longinvest wrote: Sat Aug 17, 2019 7:15 pm
MrJones wrote: Sat Aug 17, 2019 6:41 pm Talk is cheap. Numbers don't lie. What do the numbers say? Without that, this is a dead end.

Single funds have been around for a while. Why should anyone believe your statements with no basic analysis to back it up?
Dear MrJones,

I've provided the logic.

I don't know what the future returns of domestic stocks and bonds will be, on a month by month basis, over my lifetime. I don't know how much salary I'll exactly get between now and retirement. I don't even know when I'll retire. In retirement, I don't know the exact amounts that will be withdrawn from my various accounts on a yearly basis, and the exact amount of other income. I don't know how much I'll incur in health expenses that give place to tax relief. The future is too uncertain for me to make precise calculations.

Our wiki page on tax-efficient fund placement promotes a specific strategy, but admits that it might prove to be a poor choice (and it mostly ignores the risk-adjusted impact of its promoted strategy, which is relegated to a different page on tax-adjusted asset allocation):

Tax-efficient fund placement
What was a logical tax location one year may turn out to be a poor choice a few years later. Consider if it's worth the effort (added complexity) to take this approach.
I'm suggesting a simpler strategy that requires fewer assumptions and that is resilient to an uncertain future (taxes, circumstances, etc).

"When there are multiple solutions to a problem, choose the simplest one." -- Jack Bogle

Best regards,

longinvest
Bogle was simply rephrasing Occam's Razor.
And?
It's called Occam's razor, not Bogle's razor. Just giving credit where credit is due.
Absolutely. You're correct. Mr. Bogle gave Occam credit in his book, so Occam should get credit here, too. :-)
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drumboy256
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Re: The One-Fund Portfolio as a default suggestion

Post by drumboy256 »

Wanted to chime in and thank longinvest for this thread. One fund is the essence of the Boglehead mentality of which I love how simple it is now to look at my portfolio. Thanks again!
Promise is one thing. Fulfilling that promise is quite another. - Sir Alex Ferguson | 20% IVV / 40% IBIT / 20% IXUS / 20% VGLT + chill
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longinvest
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Joined: Sat Aug 11, 2012 8:44 am

Re: The One-Fund Portfolio as a default suggestion

Post by longinvest »

drumboy256 wrote: Sun Oct 17, 2021 5:28 pm I love how simple it is now to look at my portfolio.
Drumboy256, thanks for sharing your experience.
Variable Percentage Withdrawal (bogleheads.org/wiki/VPW) | One-Fund Portfolio (bogleheads.org/forum/viewtopic.php?t=287967)
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burritoLover
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Re: The One-Fund Portfolio as a default suggestion

Post by burritoLover »

one-fund portfolios in taxable can be troublesome - some can spit off some huge capital gains - like some Vanguard TDFs at over a $1/share recently. That's a killer tax drag for a large portfolio.
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